The Central Bank of Nigeria (CBN) has said it is closely monitoring two deposit money banks (DMBs) following findings that their capital adequacy ratio (CAR) has fallen below the 10 per cent prudential minimum stipulated under the Basel I and Basel II framework.
CAR is the ratio of a bank’s capital relative to its credit, market and operational risks and financial regulators often keep an eye on it to ensure that banks can absorb a reasonable amount of losses.
It has also emerged that the total banking industry impaired loans or non-performing loans (NPL) increased by 16.36 per cent to N400.57 billion in August 2014 from N344.26 billion in August 2013, of which 66.84 per cent or N267.74 billion in loan loss provisions had been made by banks in the country.
However, the NPL ratio stood at 3.57 per cent as at August 2014, representing a decrease of 14 basis points compared with the corresponding period of August 2013.
The affected banks with low CARs, whose identities are yet to be disclosed, were said to have been engaged by the central bank and directed to recapitalise to meet the regulatory minimum.
In an update on the state of the economy and financial sector which was presented to the Bankers’ Committee last week, notwithstanding the worrisome condition of the two financial institutions, other Nigerian banks generally remained adequately capitalised with an average CAR of 17.75 per cent at the end of August 2014 compared to 18.1 per cent in August 2013, using Basel I capital adequacy framework.
CBN Deputy Governor, Economic Policy, Dr. Sarah Alade had attributed banks’ declining CAR largely to an increase in risk weighted assets as industry CAR under Basel II stood at 15.76 per cent as at August 2014.
According to the report, industry gross loans increased by 21.03 per cent to about N11.22 trillion in August 2014 compared to about N9.27 trillion in August 2013.
The CBN deputy governor said industry liquidity ratio declined from 50.6 per cent at the end of December 2013 to 42.6 per cent by the end of June 2014 due to the increased cash reserve requirement (CRR) imposed on banks.
However, all banks were said to have met the prudential minimum requirement of 30 per cent liquidity ratio which stood at 43.87 per cent as at August 2014, while total industry deposits grew by 5.94 per cent or N937.74 billion from N15,783.14 billion in August 2013 to N16,720.88 billion in August 2014.
In addition, the industry unaudited profit before tax decreased marginally by about 0.004 per cent from N385.68 billion for the period January to August 2013 to N385.67 billion during the period January to August 2014.
Also, the return on equity (ROE) among banks declined to 2.39 per cent in August 2014 compared to 2.63 per cent in August 2013, while return on assets (ROA) dropped to 20.36 per cent in August 2014 compared to 22.47 per cent in August 2013.
The report also showed that the federal government has so far collected the sum of N3.731 trillion this year including about N3.02 trillion from the monthly Federation Accounts Allocation Committee (FAAC) allocation, N113.63 billion came from value added tax (VAT), independent revenue (N452.04 billion), unspent balance (N120 billion) as well as balance in special account (N21.68 billion).
Meanwhile, as anxiety persists over declining crude oil prices, the CBN Governor, Mr. Godwin Emefiele, has said the central bank will unveil plans to support price stability in the coming weeks.
Also, following several requests by banks to extend credit facilities to the debtors of Asset Management Corporation of Nigeria (AMCON) and other obligors in the banking industry, the CBN has lifted the ban placed on this category of debtors.
Emefiele said this in Lagos weekend at the 2014 Chartered Institute of Bankers of Nigeria (CIBN) investiture ceremony where he was made an honorary fellow of the institute.
Emefiele, who said he was aware that crude oil prices had been dropping, a situation which he said presents some form of vulnerabilities to the country, assured Nigerians that both the fiscal and monetary authorities are taking measures that would ensure that the country withstands any likely shock on the economy.
“A number of actions would be unveiled in the next few weeks that both the monetary and fiscal authority would ensure that Nigeria continues to remain strong and healthy to support growth and development in Nigeria.
“Overall, price stability would remain the primary focus of the monetary policy in the short and medium term. With regards to the exchange rate, the major objectives of the bank’s policy have been ensuring stability in the value of the naira,” the CBN governor explained.
Emefiele described the theme of the event: “Making Nigeria a Major Destination for Foreign Direct Investment (FDI)”, as both timely and appropriate in today’s global economic and geopolitical environment.
He pointed out that in view of the fact that resources are usually less than a country’s needs, domestic savings are mostly never enough for the investment needed to put a country on a sustainable growth path.
“Given this scenario, countries around must compete, sometimes fiercely, to attract investments from abroad. Countries around the world must compete for it by creating an enabling environment to attract such investments.
“I believe that financial system and economic stability are at the core of this enabling environment. While there is always room for improvement, I believe that Nigeria has created such an environment and is continuosly striving to improve it,” he added.
According to the CBN governor, the central bank’s contribution to laying the foundation for a vibrant economy that would attract FDIs has been anchored on promoting policies that could sustain the country’s hard-earned macroeconomic stability.
He said Nigeria, which is now a leading destination for FDI in Africa, had received direct investment of over $67 billion between 2000 and 2013.
Emefiele added: “We have pursued a clear and consistent monetary policy that is guided by prevailing domestic monetary conditions, as well as developments in the global economy, particularly in the major advanced economies and our trading partners.
“Overall, price stability would remain the primary focus of the monetary policy in the short to medium term. We will continue to strive to build and maintain a healthy external reserves position.
“As we improve accretion to reserves and build fiscal buffers, we expect the naira to remain strong and give foreign investors the clarity and certainty that they need to guide future investment decisions.
“In the area of financial stability, we hope to sustain the effective management of potential threats and avoid a systemic crisis. The core of the bank’s vision is to effectively manage potential threats to financial stability and create a strong governance regime that is conducive for financial intermediation, innovative finance and inclusiveness.”
Meanwhile, the CBN which revealed the lifting of the ban on debtors in a letter addressed to all banks titled, “Guidelines for Processing Request from DMBs to Extend New/Additional Credit Facilities to Loan Defaulters and AMCON Obligors”, a copy of which was posted on its website yesterday, outlined conditions such category of bank customers must meet before they are granted fresh facilities by banks.
The letter was signed by CBN’s Director of Banking Supervision, Tokunbo Martins.
The central bank had in a circular on June 30, 2014 prohibited loan defaulters from further access to credit facilities in the banking system.
For AMCON obligors, the latest policy states that for any institution that had done a credit appraisal on the delinquent obligor and is desirous of extending a new facility to the obligor, should approach AMCON and obtain the value of the obligor’s Eligible Bank Asset (EBA) purchased by the corporation.
The institution is also expected to obtain from AMCON the terms of settlement reached between the obligor and AMCON, including a copy of the offer letter issued by AMCON upon restructuring of the facility and the current performance status of the obligors’ facility(ies) with AMCON and details of repayments so far made with dates.
In addition, the financial institution is expected to get the obligor’s good faith payment made (if any) and collaterals held, and a letter from AMCON expressing no objection (not guarantee) for the grant of the new/additional facility by the bank.
After obtaining AMCON’s no objection, the financial institution, according to the CBN, should write to the CBN seeking an exception for the obligor.
The letter is expected to be forwarded along with the following: the above information received from AMCON and AMCON’s letter of no objection (not guarantee) for the grant of the new/additional facility; details on the proposed additional facility; and the purpose of the facility.
“The institution’s request should include reasons advanced by the obligor for non-repayment of initial facility(ies) availed; details on how the new facility would positively impact on the obligor’s outstanding indebtedness to AMCON or on any other delinquent facility(ies); details of the collateral/credit risk mitigants proposed for the new facility and the level of perfection of title.
“This should also include valuation reports, from two independent valuers, indicating the open market value and forced sale value of the proposed collateral.
“The security/collateral should be distinct from whatever collateral is being held by AMCON for the EBA or where not different, details of agreements reached in this regard,” it stated.
For other categories of bank debtors, the central bank directed that institutions’ request to the CBN, should among other things, contain details of the proposed additional facility and the purpose of the facility.
In addition to the requirements for AMCON obligors and other delinquent obligors, the lending institutions are also expected to have met the minimum regulatory and internal economic capital adequacy ratio and liquidity ratio requirements for six months prior to the request; have a non-performing loan ratio not above five per cent in the last six months prior to the request; and the bank would be required to make a provision of 50 per cent on the loan from the onset of the loan, irrespective of performance status, and 150 per cent if for any reason the loan later turns out to be non-performing.
“After a review of the bank’s request, the CBN would either note the bank’s submission or decline. Institutions should be aware that the CBN’s position does not compel the bank to avail any facility to the obligor,” it added.
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